An overview of Asian equity markets

Abstract

This study overviews the development of 11 Asian equity markets, namely, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, Taiwan, and Thailand. Prior to the onset of the global financial crisis, the Asian stock exchanges were generally bullish, underpinned particularly by China's robust economic performance. Innovations in financial products and services have been growing in importance, as stock exchanges in these countries have been making a concerted effort to introduce new features and best practices, with the objectives of raising market efficiency, enhancing service quality, and generally bringing operations up to par with international standards. But the potential to realize or support market efficiency can only be possible within an adequate legal framework, a sound market infrastructure, and appropriate corporate governance mechanisms. Thus, many challenges are still to be overcome in the region. Copyright © 2010 The Authors. Journal compilation © 2010 Crawford School of Economics and Government, The Australian National University and Blackwell Publishing Asia Pty Ltd..

Regional stock markets and the economic development of Southeast Asia

“…Stock markets in SEA have grown significantly in recent times and have been regarded as one of the main contributors to economic development in the region (Hsieh and Nieh ; Huff ; World Bank ). The Asian Development Bank () indicates that the percentage of stock market capitalisation to GDP in Singapore, Malaysia, and Indonesia exceeded 100 per cent at the end of 2010, while Thailand and the Philippines' stock market capitalisations were equivalent to more than 80 per cent of their GDP.…”

“…As such, the more concentrated the banking system, the thinner the capital market (World Bank ). Relatively weak domestic financial systems have, therefore, placed SEA economies under threat from foreign capital at times, that is the significant exchange rate and interest rate shocks experienced by SEA during heightened global market volatility (Hsieh and Nieh ; Gochoco‐Bautista and Remolona ). As a result, governments in some SEA countries have paid more attention to the development of stock markets as a way to (1) diversify and facilitate the exchange of goods and services, (2) attract foreign investment funds, (3) maximise domestic savings, and (4) promote economic stability.…”

“…The literature (Beck and Levine ; Chambet and Gibson ; Enisan and Olufisayo ; Ake ; Hsieh and Nieh ; Rahman and Salahuddin ; Hearn et al. ; Huff ; Jayasuriya ) appears to support such reforms, arguing that securities markets play a significant role alongside the banking sector, and have a long‐run relationship with economic growth.…”

“…Nevertheless, Parsley and Popper () suggest that the majority of SEA firms are exposed to significant foreign exchange rate risk, particularly to fluctuations in the US dollar, which does not appear to decline under exchange rate pegs. Further, the exposure to foreign exchange risk among SEA firms is more prominent than what has typically been reported for firms in Western economies, making such investment inherently risky (Hee Ng ; Parsley and Popper ; Hsieh and Nieh ).…”

“…Drake (, ) claims that developing stock markets are feasible and can play a significant role in the development of an economy. It is generally acknowledged that SEA stock markets play an important role in promoting the quality of financial systems, that is encouraging information acquisition, corporate disclosure and monitoring, financial risk management, the diversification of investment, and savings mobilisation (Levine ; Hsieh and Nieh ). The high growth potential of equity markets in SEA has established a strong connection with its economic performance and long‐term development (Levine and Zervos ; Huff ).…”